The Good, The Bad, The Ugly of Nigeria’s Debt

Nigeria’s debt portfolio has recorded a progressive growth at least in the last six years. As at June 2018, the figure has risen to N22.4trillion or about $73.2billion. Though government financial managers have argued that the rate of increase still remains within a manageable limit, financial experts and the World Bank have disagreed, warning that the country was headed for a disaster. Bamidele Famoofo reports.

Nigeria’s debt servicing problems began around 1985, when the Nigerian government’s total external debt to all creditors amounted to $19 billion. The government at that time was able to pay creditors more than $35 billion even though it borrowed less than $15 billion. Nevertheless, its outstanding external debt at the end of 2004 grew to almost $36 billion.

Intense domestic pressure then convinced the then President Olusegun Obasanjo to seek a deal that would eliminate the country’s $31 billion of debt owed to the governments of the U.K., France, and other aid-giving countries that use the Paris Club process to restructure debt that countries cannot repay.

The Paris Club creditors proposed an unprecedented operation—it’s first-ever buyback at a discount—that would cancel all of Nigeria’s debt to them in exchange for a cash payment of roughly $12 billion.

Despite sharp criticisms that greeted the deal, it sailed through, and Nigeria was able to heave a big sigh of relief from its heavy debt burden.

Present

It would not appear that Nigeria has been able to learn any meaningful lesson from its deliverance from the yoke of debt some 13 years ago, as it has further gone neck- deep into borrowing to run the economy, which has many sources of revenue leakages.

According to the Debt Management Office (DMO), the country’s debt stock as at June 30, 2018 stands at about N22.4 trillion, or $73.2 billion. It represents a progressive increase from $62billion recorded in fiscal year 2014. The debt portfolio rose 30 per cent to $62 billion in 2014, up from $47.6 billion as at September 2013.

According to DMO Director General, Patience Oniha, the current debt stock consists of domestic and external debt stocks of the federal government, 36 states and the Federal Capital Territory (FCT).

Oniha noted that the current debt stock decreased by 1.44 per cent from N22.71 trillion in March 2018 to N22.4 trillion. The decrease, she explained, was due to a 3.38 per cent decline in the federal government debt stock between March and June, 2018 and 2.75 per cent in the domestic debt of states.

“The federal government’s domestic debt declined from N12.59 trillion in December 2017 to N12.58 trillion in March 2017 and N12.15 trillion in June 2018, she said.

Oniha attributed the reduction to the redemption of N198 billion Nigerian treasury bills in December 2017 and another N639 billion between January and June 2018.

Future

To be able to finance the 2018 budget deficit, Oniha said the government would borrow N1.643 trillion. Already, the federal government has sourced about N410 billion funding from the domestic financial market to finance the 2018 capital budget, the DMO disclosed recently.

According to DMO, about $3 billion was raised through Eurobond to refinance maturing domestic debts as part of the debt management strategy to replace high-cost domestic debt with lower external debt.

Oniha, disclosed this in Abuja while presenting the update on the country’s public debt as at June 30, 2018.

Debate

Oniha has dismissed insinuations that the huge borrowing by the government between 2015 and mid-2018 was excessive, saying: “All government borrowings follow rigorous interrogation by the legislature before passing the requisite Appropriation Act to support the borrowing implemented by the DMO.

“If the government did not borrow so much in the last three years, it would not have been able to function as a government.

“The huge borrowing became necessary, following the fall in revenue as a result of the fall in the price of crude and the attendant devaluation of the Naira from the use of the external reserve to defend the National currency,” she argued.

The DMO boss noted that the implementation of the Public Debt Management Strategy which overall objective “is to ensure that Nigeria’s debt is sustainable, is already yielding positive results.”

Nigeria’s Minister of Finance, Mrs. Kemi Adeosun, sometime in April at the 2018 IMF and World Bank meetings in Washington DC, said the country’s public debt level was under control and sustainable. This was in spite of the warning by the International Monetary Fund (IMF) that debt levels in African economies were on the increase. Adeosun said she owed no one an apology because the country had to borrow to exit economic hardship on its citizens.

But Nigeria’s Senate Committee on Local and Foreign Debts have aired a dissenting voice against the claims of government, insisting that Nigeria needs to lower its debt profile in order to make financial resources available for priority projects.

Chairman of the committee, Shehu Sani, who made the call a few months back during a courtesy call to the office of the Vice President, said the country’s borrowing which was heightened during the period of recession, needed to be cut. Though Sani agreed that borrowing during the recession to invest in infrastructure, agriculture, mining among others, with multiplier implication of increasing employment and reflating the economy was justifiable, he said it was high time government curbed it.

The lawmaker harped on the need to make conscious effort at reducing the debt ratio, saying, “There is a clear need to lower this ratio in order to make financial resources available for priority projects, for the benefit of Nigerians.”

Analysis

Nigeria’s domestic and external debt ratio as at June 30, 2018 stood at 70:30 compared to 73:27 in December 2017. Similarly, the ratio between long-term domestic debt to short-term domestic debt was 76:24 in June 2018 compared to 72:28 in December 2017.

The DMO said this resulted in lower interest rates for the benchmark FGN securities from about 18.5 per cent in January 2017 to 11-14 per cent in the first half of 2018.

Also, with the redemption of about N840billion of Nigerian treasury bills more funds were available for lending by banks to the private sector. External capital raising activities also contributed to the increase in external reserves.

On the state governments’ indebtedness and their capacities to pay back, the DMO DG said by law they were not allowed to borrow more than 40 per cent of their internally generated revenue (IGR) to allow for the remaining 60 to be used to run their states. Some of the beneficial outcomes, DMO stated, included the rebalancing of the country’s debt stock; reduction of the domestic to external debt ratio from the 60:40 target to 75:25 between long term and short term domestic debt.Adeosun has however given the assurance that the government would keep monitoring and analysing Nigeria’s debt levels at every stage so that the country doesn’t fall into the trap that most African states had fallen into.